Strategies to save for a tax free retirement
There are several ways to provide income when you reach retirement, but you have to consider if you want to be taxed in retirement or not to be taxed in retirement. Using a combination of Roth IRA and permanent life insurance there are ways to achieve tax free income when you reach retirement.
Permanent Insurance such as Indexed Universal Life Insurance can provide an income tax free death benefit for the people who depend on you the most. It will also defer taxes as your accumulated cash value grows and you have the potential to access that cash value using income tax free policy loans and withdrawals to use for retirement income and anything else you may need.
The After Tax Strategy would be when you set aside a portion of your after tax income into an account that is specifically allotted for retirement income. Taxes are paid annually on any earnings as income and a great example of this would be certificates of deposit.
The Tax Deferred Strategy would be when you set aside a portion of your after tax income for retirement into an account where the earnings grow tax deferred. When you choose to take income, taxes are due as you receive that tax deferred gain. A non deductible IRA or deferred annuity would be an example of this type of account. Remember that income from annuities are taxed on a LIFO basis with exclusion rations from initial principal and interest earned.
The Pre Tax Strategy would include an job related sponsored qualified plan similar to a 401(k) plan. Your contributions are made pre tax and your earnings grow tax deferred. When you elect to receive income from these accounts the income is taxed as ordinary income.
The Tax Free Strategy is very similar to the tax deferred strategy but there are some differences. You will contribute a portion of your after tax income to an account and your earnings grow tax deferred. With a Roth IRA income received at retirement is income tax free. Just as a Roth IRA will provide tax free income, permanent life insurance such as IUL can also do the same thing as well.
There are great benefits to both Roth IRA’s as well as Indexed Universal Life Insurance. To find out more about what Maryland Annuity Resource can do for you, please contact us and we would be happy to help.